Kaljulaid proclaims supplementary budget, associated law amendments

President Kersti Kaljulaid.
President Kersti Kaljulaid. Source: Siim Lõvi/ERR

President Kersti Kaljulaid on Friday proclaimed the supplementary budget and amendments to associated acts passed by the Riigikogu on Wednesday. However, she expressed doubts about several items on the bill.

The supplementary budget, also referred to as the omnibus or cluster bill, is the government's €2 billion package of measures to help the economy during the coronavirus (COVID-19) pandemic and to mitigate its effects.

Kaljulaid said: "Estonia is living in an emergency situation for the second month in a row and it has important social and economic consequences. Our economy is suffering to an unpredictable extent. Unemployment is rising and it is difficult to assess the duration of the crisis and its long-term impact on exporting companies."

Kaljulaid said the Estonian economy has reached its current volumes only due to its export capacity, participation in the European common market and global supply chains.

"Thus, increasing public spending alone cannot be an alternative way to keep the Estonian economy at pre-crisis level. Rather, the package of laws adopted so far is a measure to help survive the crisis, hoping for a speedy recovery in the global economy. With measures that will ensure better start-up acceleration for Estonian companies at the end of the crisis," the president noted.

"This assistance must reach those in need quickly. That is why I have just announced the supplementary budget and related amendments to the laws approved by the Riigikogu on Wednesday. The steps proposed by the government in these bills are mostly proportionate and crisis management. They are in accordance with the Constitution," she said.

Kaljulaid: Excise duty reduction and suspension of second pillar pension payments remain incomprehensible

However, Kaljulaid considered it necessary to draw attention to two factors. "First, a large-scale reduction in excise duty on all energy sources is a measure whose link to managing the crisis directly or mitigating its effects remains incomprehensible. Undoubtedly, many companies The general large-scale excise duty reductions reduce the motivation to invest in housing insulation, switch to more economical means of transport, etc. Lower energy excise duties do not contribute to the green revolution, while many countries are trying to support the climate change individually through exit measures," she said.

Secondly, Kaljulaid noted the chosen path to suspend the payments of the second pillar of the pension and to compensate it later together with the compensation of the intermediate return may have an unpredictable effect on the state budget.

"The fact that pensioners may later be compensated for any loss of income is in itself positive. At the same time, it remains unclear why the state is essentially willing to borrow money from pension savers in a situation with an unknown interest rate, where today, thanks to decades of responsible fiscal policy and belonging to the euro area, the country is able to raise money in the budget from other sources at very favorable and fixed interest rates. With this step, the state takes an unnecessary budgetary risk," Kaljulaid said.

Supplementay budget key points:

ERR's Estonian-language online news portal provided an overview of the bill's key points.

  • The government sector's nominal budget deficit this year has been forecast at €1.5 billion, or 5.7 percent of Estonia's GDP.
  • Average wage growth is expected to slow to 0.6 percent.
  • Social tax receipts are to decrease 6.8 percent in 2020, or €461 million compared with the state budget.
  • €400 million less in social tax receipts is forecast for 2021.
    Forecast 2020 VAT receipts have been reduced by €328 million, or 6.5 percent compared with the budget forecast.
  • Forecast 2020 excise receipts have been reduced by €142.3 million compared with the budget forecast.
  • Fuel excise receipts are expected to fall the most.
  • The State Treasury's negative cash flows are expected to increase to €1.7 billion this year.

Separate major measures

  • Reducing interest rate on payment schedules for tax debts from the current 50 percent to up to 100 percent — cost of €141 million.
  • Temporary halting of payments into the second pension pillar — revenue of €142 million.
  • Kredex measure for renovation of apartment buildings and houses — cost of €100 million.
  • Kredex sureties for relieving bank loan repayment schedules — cost of €103.5 million.
  • Unemployment Insurance Fund labor market support measure over two-month period — cost of €250 million.
  • Taxes given to local governments to be reduced: income tax by €192.8 million and mineral rights fees by €320,000.
  • Land tax receipts to increase by €1 million.


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Editor: Helen Wright

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